Choosing Between SCHF and IEFA: A Deep Dive Into Cost, Income, and International Diversification

Making the Right ETF Choice: What Sets These Funds Apart

When selecting an international equity ETF, investors often narrow their choices to Schwab International Equity ETF (SCHF) and iShares Core MSCI EAFE ETF (IEFA). While both funds provide exposure to developed markets outside the United States, they differ meaningfully in expense ratios, dividend payouts, and portfolio composition. Understanding these distinctions helps investors align fund selection with their financial goals—whether prioritizing lower ongoing costs, higher income generation, or broader diversification.

The Cost Advantage: Lower Expenses and Higher Income Potential

One of the most compelling reasons to consider SCHF is its significantly lower expense ratio. At just 0.03% annually, SCHF undercuts IEFA’s 0.07% fee structure. For long-term investors managing large positions, this difference compounds substantially over decades. Beyond cost efficiency, SCHF delivers a higher dividend yield at 3.5% compared to IEFA’s 2.9%—a meaningful gap for income-focused portfolios.

A quick snapshot of the financial metrics reveals:

• SCHF: 0.03% expense ratio, 3.5% dividend yield, $54.8 billion AUM
• IEFA: 0.07% expense ratio, 2.9% dividend yield, $161.9 billion AUM

IEFA’s significantly larger asset base reflects its longer market presence and broader appeal, yet this scale advantage doesn’t translate into lower fees or better income generation.

Performance Metrics: Nearly Identical Returns With Subtle Risk Differences

Over the trailing 12 months (as of December 12, 2025), both funds delivered comparable returns—SCHF posted 21.2% while IEFA achieved 22.0%. Looking at longer-term performance, a $1,000 investment five years ago would have grown to approximately $1,341 in SCHF and $1,330 in IEFA, showcasing remarkably similar trajectories.

Risk profiles are equally similar. SCHF carries a beta of 0.86 and IEFA a beta of 0.85, both indicating lower volatility relative to the broader U.S. market. Maximum drawdowns over five years were nearly identical—SCHF experienced a -29.17% decline at its worst point, while IEFA saw -30.41%, suggesting comparable downside exposure during market stress periods.

Inside the Portfolios: Diversification vs. Concentration

The holdings and sector allocation reveal subtle but important differences:

IEFA’s Broader Approach: IEFA holds 2,600 stocks across its portfolio, providing exposure to a substantially wider slice of developed international markets. The fund has been operating for 13.1 years, making it a seasoned vehicle. Sector-wise, IEFA emphasizes financial services (22%), industrials (20%), and healthcare (10%). Top holdings include ASML Holding, AstraZeneca, and Roche Holding, representing large-cap international names.

SCHF’s Focused Strategy: SCHF maintains a tighter portfolio of 1,501 companies with a slightly different sector tilt: financial services (24%), industrials (19%), and technology (11%). Its largest positions also feature ASML and Roche, though Samsung Electronics appears as a more prominent holding. This more concentrated approach doesn’t sacrifice diversification but takes a different methodological stance.

Both funds overlap significantly in key holdings, particularly in pharmaceutical and industrial giants. Neither fund employs currency hedging, meaning investors face direct exposure to foreign exchange fluctuations—a crucial consideration for dollar-based investors.

The Investor Decision Framework

For those prioritizing lower fees, SCHF presents a clear advantage. The 0.03% expense ratio versus 0.07% may seem trivial in isolation, but across a $100,000 portfolio over 30 years, the savings compound meaningfully.

For income investors seeking higher dividend yield, SCHF’s 3.5% payout exceeds IEFA’s 2.9%, offering tangible cash flow improvements for those living off portfolio distributions.

For those valuing maximum diversification with a larger universe of holdings, IEFA’s 2,600-stock roster provides wider international coverage, though this breadth comes at marginally higher costs.

Performance and risk metrics suggest that between these two funds, the choice hinges less on returns and more on cost consciousness, income preferences, and diversification philosophy. Both have proven resilient across market cycles and deliver comparable long-term value.

Key Terms to Understand

• Expense Ratio: The annual percentage fee charged by a fund to cover management and operational costs
• Dividend Yield: The annual income distribution expressed as a percentage of current fund price
• Beta: A volatility measure comparing an investment’s price swings to the S&P 500 benchmark
• AUM (Assets Under Management): Total market value of assets overseen by the fund
• Max Drawdown: The steepest percentage decline from peak to trough during a specified period
• Developed Markets: Economically advanced nations with established financial infrastructure, including Japan, the UK, and Germany
• Index: A statistical benchmark representing a basket of securities used for performance comparison
• Diversification: Risk reduction strategy involving investment spread across multiple assets and sectors
• Portfolio Construction: The systematic selection and weighting of holdings to achieve specific investment objectives